Insurer wins a reprieve on class actions

Times Staff Writer

A state appeals court Thursday vacated its month-old decision that had allowed policyholders the right to sue as a class over canceled health coverage and granted Blue Shield of California a rehearing on the hotly contested issue.

The Dec. 4 ruling was a victory for consumers. Then, the state Court of Appeal in Los Angeles opened the door to class-action lawsuits by policyholders who had been dropped after they filed claims for medical care.

That ruling called into question the practice by Blue Shield and other insurers of waiting until individual policyholders incurred medical expenses before scrutinizing their applications for misstatements -- and then canceling for alleged omissions and errors.


The practice of looking back at applications after medical claims are submitted, known as post-claims underwriting, “is flatly prohibited,” the three-judge panel said in the unanimous decision.

The court also said that if an insurer failed to properly attach a copy of the completed application to an individual’s policy, the company forfeited the right to cancel.

Blue Shield of California Life & Health Insurance Co., the Blue Shield unit involved in the case, disagreed with the court’s interpretation of the law and asked for the rehearing.

It maintains that state law allows insurers to cancel the policies of individuals who make omissions or misstatements on coverage applications, even if those discrepancies are discovered after claims are submitted.

“We are pleased that the court vacated the opinion by granting our request for rehearing, and we look forward to the new opinion,” said David Seldin, a spokesman for Blue Shield.

The court has a number of options, including sticking by its original opinion or drafting a new one.